'I have brought back TN from bankruptcy'

If Finance Minister P Chidambaram is given credit for controlling fiscal deficit at the Centre, Tamil Nadu Chief Minister Jayalalithaa doesn't fail to tell voters that she has tamed the genie in the state.

Last week, she said in Chennai that her government could afford to offer free rice only because "I have brought the state back from the brink of bankruptcy, without any help from the 12 Tamil ministers in the central government."

So confident was she of the state's financial position that Jayalalithaa went on a freebie spree just before elections: power tariffs for powerloom workers was slashed by over 40 per cent, additional Rs 300 crore was provided in food subsidy to support PDS, direct power subsidies to the poor were doled out and a "revolving fund" of Rs 10,000 each to 50,000 women self-help groups, totalling Rs 50 crore, was launched.

All this was achieved by bringing down the state's fiscal deficit from a crippling Rs 6,922 crore to Rs 360 crore in 2005-06. "I have the financial resources to make good on my promises, I can give the people what they need," the chief minister said.

Tamil Nadu Finance Minister C Ponnaiyan, however, said rigorous cost accounting systems imposed by the state, along with the nationalisation of the liquor trade, bridged the fiscal gap.

But the real reason is a contraction of costs on employment. Tamil Nadu has a population of around 60 million and 12,000,000 government employees. No less than 87 per cent of the state's revenue was used to pay salaries. To contain the wage bill, the Jayalalithaa government did not fill the 300,000 vacancies created by superannuated employees.

But the way things are going, the state's fiscal deficit is going to be back where it started. At the beginning of the campaign, DMK President M Karunanidhi offered rice at Rs 2 per kg and free television sets to the poor. Not willing to be left behind, Jayalalithaa promised 10 kg of free rice and four grams of gold during the marriage of poor girls.

How the state managed the contraction of the fiscal deficit is clear. How it is going to sustain it is another matter.